FedEx Cuts Guidance, Sees Slowing Global Economy

This was expected after the Q1 guidance cut earlier in the month, but the quarterly report is shedding a lot more detail on the outlook for the global economy.  FedEx, of course, is a good barometer for the global economy.  The short story is the global economy is getting weaker, they’re cutting costs and profits are likely to decline.

Here are some highlights from the conference call and the earnings report (via Seeking Alpha):

 “On the economic front, we continue to see modest growth in the global economy. Our calendar year ’12 U.S. GDP growth forecast is 2.2% and 1.9% for calendar year ’13, which is 0.5 points lower than our fourth quarter earnings forecast. For industrial production, we expect a growth of 4.2% in calendar year ’12, slightly below last quarter, and 3% in calendar year ’13, 0.5 points lower than our fourth quarter forecast. Our global GDP forecast is 2.3% for calendar ’12 and 2.7% for calendar ’13, 0.3 points lower than our last call.”

…Turning to the outlook and looking ahead, we’re expecting earnings per share of $1.30 to $1.45 for the second quarter and have lowered our guidance for the year to $6.20 to $6.60 per diluted share. This guidance assume weaker economic growth in the economy than we had expected when we first gave you guidance for FY ’13, as Mike described earlier.

…the global trading economy is still the largest single economy in the world. But over the last several months, particularly as we went into this fiscal year, it’s been disappointing, and I think it’s reflective of the low growth in the United States. You’ve got contraction going on in Europe. And because of North America and Europe, China’s export economy, which has been driven by the consumer economies in the United States, North America and Europe, are reflected in the lower trade numbers.

…I mean we took significant haircuts, that Mike mentioned earlier, to our calendar year ’13 numbers. And so we see economy not improving from here. And I watched Mr. Fisher this morning, the ex-Fed member, saying that he thought the economy was at stall, at current. And I think that it’s kind of voting member, he’s still currently there. I think that’s what we’re seeing.

…I can tell you this on China. The locomotive that has driven China’s growth is its export industries. And with the situation in Europe and, to a lesser degree, in North America, that is a significant issue for the Chinese economy. Now the consumer consumption in China is not increasing at a significant rate contrary to everybody’s hopes. While exports from, say, the United States into China have grown, they are dwarfed by the exports from China into the United States. And as the big economies in Europe and the U.S. have grown or contracted — grown at a far lesser rate or, in the case of certain European countries, have contracted, that’s reflected in the numbers in China. And you can’t escape that. I’ve been somewhat amused watching some of the China observers, I think, completely underestimate the effects of the slower exports on the overall China economy.”

 

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. Cullen,

    Doesn’t this anecdotal data in part explain why the FED acted in what I would describe as a panicky matter with the QE move?

    “When it becomes serious, you have to lie.” -Jean Claude Juncker, May 2011
    http://blogs.wsj.com/brussels/2011/05/09/luxembourg-lies-on-secret-meeting/

    “And as the big economies in Europe and the U.S. have grown or contracted — grown at a far lesser rate or, in the case of certain European countries, have contracted, that’s reflected in the numbers in China. And you can’t escape that. I’ve been somewhat amused watching some of the China observers, I think, completely underestimate the effects of the slower exports on the overall China economy.”

      • I always come back to Bernanke’s early 00′s piece where he mentioned Japan not doing enough. I guess the risk no one is talking about, is the FED does TOO MUCH and all the sudden CPI surges much quicker than expected. That would seem to be the main risk here, that prices rise dramatically and the FED has to put the breaks on to fight inflation it caused (but will claim it wasn’t them who caused it).

        • I still think the Fed did QE-i because the unlimited Congressional appropriation to support Fannie and Freddie runs out on Jan 1 2013, and the moved it up to September 2012 because of the election. They need the Fed to substitute for Congress to keep F/F operating, and they need QE now so Obama wins and Bernanke can get another 4 years. Inflation and unemployment are irrelevant, and the Fed could care less.

  2. Gotta listen when corporations like Fed Ex speak of a slowing economy. Fortunately, companies are revising guidance lower as not to get caught flat footed and inventory management should be much improved since 2008. However, global recession could still hurt many companies much worse than their revised guidance indicates. Hold on to you seat belts because this is going to be a very interesting 6 months or so.

    • I don’t need FedEx to know that China (and India) are in hard landing. The best thing is to go there frequently and speak to the people, look at the fuel and food prices, etc… That’s the reason I told to my collegues to SELL emerging markets (all of them) at the end of 2011. Early call ? No. Am I prescient ? Absolutely not, but I was there in 2009, 2010, 2011 and I’m going there again the next week.

      • Tell us what to buy when you get back.
        If EM was to be the driving force to rescue the developed economies and they are contracting as you say and as Pettis says, then where is the big force to come from now?

        • The future is bleak. There are too much imbalances, and I think the EM are much weaker than the western countries which are now much weaker than in the past. Oil and food prices (which are stongly connected) will go up (with many spikes up/down) and this is a drag on weak countries with growing polulation, an energy inefficient economy, a lot of young people with poor quality jobs. Some of those places will not be safe in the near future, so if you want to go there for tourism, do it now. This is the opinion I’m sharing with quite a distinct group of minds much better than mine.